BIS Adopts “Fifty Percent Rule” for Entity List, Significantly Expanding Exporter Due Diligence Obligations

Time 5 Minute Read
October 6, 2025
Legal Update

On September 29, 2025, the US Department of Commerce’s Bureau of Industry and Security (BIS) issued an interim final rule (IFR) that substantially expands the scope of US export controls, imposing significant new compliance obligations on exporters. Effective September 29, 2025, the rule extends license requirements applicable to entities on the Entity List and the Military End-User (MEU) List to any company that is 50 percent or more owned, directly or indirectly, by one or more of those listed parties.

This change closes what BIS described as a “significant loophole” and aligns the Export Administration Regulations (EAR) more closely with the long-standing “Fifty Percent Rule” maintained by the Department of the Treasury’s Office of Foreign Assets Control (OFAC). For exporters, this means that simply screening transaction parties against US government restricted party lists is no longer sufficient. Companies now have an affirmative obligation to conduct due diligence on the ownership structure of their customers, suppliers, and other counterparties.

Background: Closing a Perceived Loophole

Previously, export controls under the EAR generally applied only to the specific legal entity named on the Entity List. A listed party could circumvent restrictions by creating or using a legally distinct affiliate—such as a subsidiary or shell company—to procure US-origin items. The new rule directly targets this practice by making ownership, not just legal identity, a determining factor for export restrictions.

The New BIS Fifty Percent Rule Explained

The rule, which BIS is referring to as the “Affiliate Rule,” amends the EAR to state that any entity owned 50 percent or more, in the aggregate, by one or more parties on the Entity List or MEU List is subject to the same license requirements as the listed entity. The IFR amends part 744 of the EAR and its supplements, which cover the Entity List, MEU List, and Foreign Direct Product rules, to incorporate the Affiliate Rule changes.

Key features include:

  • Aggregate Ownership: The 50 percent threshold can be met through combined ownership by multiple restricted parties. For example, if two Entity List parties each own 25 percent of a company, that company is now subject to the same restrictions.
  • Direct and Indirect Ownership: The rule applies to complex ownership chains, requiring exporters to look beyond immediate parents.
  • Alignment with OFAC: BIS modeled this rule on OFAC’s well-established Fifty Percent Rule. While companies with robust sanctions compliance programs may leverage existing processes, the EAR context introduces new challenges and a broader universe of controlled items and technologies.

Key Implications and Challenges for Exporters

Because OFAC’s Fifty Percent Rule has long required beneficial ownership screening, many US companies already have processes in place that BIS expects will carry over to the new Affiliates Rule. Leveraging these existing procedures can help streamline compliance and minimize disruption. That said, exporters should be mindful that EAR obligations cover a broader range of transactions and technologies, potentially requiring adjustments to current programs, and the Affiliate Rule creates an additional “red flag” for exporters to incorporate into their “Know Your Customer” (KYC) programs (namely, BIS’s new Red Flag 29 specifies that such exporters “have an affirmative duty to determine the percentage of ownership of those listed entities”).

Key factors to consider include:

  • Heightened Due Diligence Burden: Exporters must now make reasonable inquiries into ownership structures, creating an affirmative duty to investigate corporate hierarchies.
  • Opaque Jurisdictions: Determining ultimate beneficial ownership can be difficult, particularly in jurisdictions with limited transparency. Companies may need to engage third-party due diligence providers or local counsel.
  • Navigating Uncertainty: If ownership cannot be definitively determined despite good-faith efforts, companies should apply for a BIS license and document their diligence efforts.
  • Risk-Based Approach: BIS expects companies to adopt risk-based compliance programs, focusing enhanced diligence on high-risk transactions involving sensitive technologies or high-risk jurisdictions.

Immediate Actions and Recommendations

  • Update Your Export Compliance Program (ECP): Incorporate ownership due diligence into screening procedures.
  • Conduct or Update Compliance Risk Assessment: Review existing counterparties, especially in high-risk jurisdictions.
  • Evaluate Screening Tools: Confirm whether your screening systems can identify ownership by listed entities and will include the Entity List, MEU List, and other non-OFAC screening lists.
  • Train Key Personnel: Ensure sales, logistics, and compliance teams understand the new rule, as well as the new “red flag” added to BIS’s KYC guidance.
  • Review the Temporary General License (TGL): BIS has issued a narrow 60-day TGL for certain pre-existing transactions. This TGL expires on December 1, 2025.

Hunton Andrews Kurth Insight

This rule represents one of the most significant expansions of export control obligations in recent years. While BIS has modeled the rule on OFAC’s approach, its application in the EAR context introduces unique challenges, particularly for companies dealing with complex supply chains and high-risk jurisdictions. Companies should act promptly to update compliance programs, enhance due diligence processes, and train personnel. Our team is closely monitoring BIS guidance and enforcement trends and is available to assist with risk assessments, compliance program updates, and license applications.

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